Feb 22 2016
Last month, Ford Motor Co. announced it would leave Japan by the end of the year, claiming the country has a closed market. American car companies have been complaining about Japanese protectionism since the 1980s, and gradually won concessions that resulted in greater opportunities for foreign automobiles in Japan, but they seem to have benefited manufacturers other than American ones.
It’s true, as the Ford spokesman told reporters, that the Japanese government helps domestic carmakers, but there was something about his tone that implied Ford never expected much from Japan. It only sold 5,000 cars here last year, and demographics being what they are, even if all the so-called barriers were lifted tomorrow, that figure likely wouldn’t rise much. So it’s best to get out while the getting is good.
Domestic manufacturers don’t foresee much improvement in Japan either, which is why they’re concentrating on overseas markets. Toyota enjoyed ¥2.3 trillion in sales in the U.S. between April and December last year, representing a 9 percent increase in operating profit over the same period in 2014. The company recently announced it would make Daihatsu a subsidiary in order to take advantage of the company’s expertise in the kinds of small cars that can be sold in emerging automobile markets.
Nevertheless, the company is still cautious. According to the Asahi Shimbun, although Toyota will spend ¥20 billion more on facilities investment in 2016 than it had originally planned, it is also sending out signals that workers will not receive a wage increase commensurate with the company’s record profits. Last year, Toyota’s labor union demanded a ¥6,000-a-month increase and got most of it. This year, despite an even better business performance, they will ask for about half that, understanding that management is nervous about Toyota’s “international competitiveness.”
The company asked parts suppliers in October to cut prices, a semiannual “custom” Toyota suspended two years ago in line with Prime Minister Shinzo Abe’s call for wage increases. In other words, after a brief hiatus it’s back to business as usual, which means workers in the automotive field shouldn’t expect bigger paychecks.
What this seems to indicate is that Japanese automotive workers are being asked to sacrifice wage hikes for the sake of world domination, which may also mean manufacturers think the domestic market is a lost cause. Car ownership is becoming more difficult for average people. Young Japanese are not as keen about automobiles as their elders were. Ford saw these circumstances as constituting a structural obstacle to its business, but it’s a natural phenomenon.
For Japanese baby boomers, the automobile was a prime aspirational symbol during the era of economic growth, but for millennials it is simply a tool, which means that if there is no immediate need for it, then they can do without a car. In a 2013 survey conducted by insurance company Sony Assurance, 70 percent of Japanese in their 20s said the main criterion for choosing a car was cost.
The trend away from cars as a status item started more than 20 years ago. Used car sales exceeded new car sales for the first time in 1992. New car sales peaked in 1990 at 7.78 million vehicles, while used car sales peaked at 8.24 million in 1997, and since then overall car sales have dropped. In 2014, 6.31 million used cars were sold as opposed to 5.56 million new cars. In 2015, sales for new cars and used cars decreased by 30 percent and 20 percent, respectively.
This practical approach to the product extends to operating them. Fewer young people are acquiring drivers licenses. In Japan you are statistically much more likely to pass your road test if you attend a driving school, but courses cost upwards of ¥200,000, so if a person doesn’t think they’ll drive very often, they aren’t going to spend that much money for a license. Between 2003 and 2013, more than 100 driving schools in the Tokyo metropolitan area went out of business, and the number of people who “graduated” from such schools dropped by more than 300,000.
Looking at the matter structurally, investment consultant Heisuke Kamiki, in his book “Okane no Wakare Michi” (“The Fork in the Road of Money”), says that young people with a modest level of means, recognizing the drawbacks of the Japanese national pension system, understand they have to start saving money now for their old age, and car ownership is one of the lifestyle options they are giving up. He then goes on to enumerate all the ways that car ownership is an economic liability.
For one thing, car-related taxes can exceed the basic price of a car depending on how long you own it. The average price of a new car these days for first-time buyers is ¥1.8 million. At the time of purchase they pay an 8 percent consumption tax, a car acquisition tax and a weight tax. Afterward they pay an automobile tax every year and a gasoline tax every time they fill their tanks, which also includes consumption tax.
In addition, the car owner will pay road tolls, mandatory insurance, a recycling fee and, of course, parking fees, which in Tokyo — the only region in Japan where the population is on the rise — average between ¥20,000 and ¥30,000 a month. And that doesn’t even include regular mandatory vehicle inspections and unforeseen costs for repairs and maintenance, not to mention the interest on the car loan, if the buyer didn’t pay cash. Kamiki estimates that if a person owns their new car for 13 years, they will pay ¥11.2 million exclusive of the initial cost of the car just to own it.
Knowing this, many people are now taking advantage of alternatives to car ownership. According to the Foundation for Promoting Personal Mobility and Ecological Transportation, the number of vehicles available through car-share services has quadrupled since 2011, and the number of members of car-share providers has increased sevenfold. This number, 700,000, is still well below the number of car owners, but as these companies spread their services to suburbs and rural areas, membership will certainly grow. The foundation projects that the car-share market will be worth ¥29.5 billion by 2020.
Of course, carmakers are anxious about these trends, and have lobbied the government to reduce taxes, but it’s difficult since revenues are earmarked even before they’re collected for things like infrastructure maintenance.
Local governments also rely heavily on car-related taxes. The best the central government can do is implement tax breaks for things like “eco-cars,” but even then it’s a problem because the savings are only temporary. When the government increased the vehicle tax on mini-cars several years ago due to pressure from the Americans, who don’t make mini-cars, sales of mini-cars dropped significantly. And mini-cars are the definition of a practical vehicle because they tend to lack design features and are built for economy and utility.
So while young people may be walking away from automobiles due to difficult financial circumstances, they are staying away because they’ve found they can do without them.
